The Insurance Business Act is the basis for the regulation of insurance businesses in Japan, providing a contractual relationship surrounding insurance products. Although Japan is not a common law country, the judicial precedent, especially that established by the Supreme Court, should be referred to when interpreting insurance contracts.
The Financial Services Agency (FSA) is the regulatory authority for insurance and reinsurance businesses in Japan. Life and non-life insurers are regulated by the Insurance Business Act. Reinsurers are regulated in the same way as non-life insurers. Based on the Insurance Business Act, the regulatory authorities have the power to issue administrative dispositions to insurance companies, including orders for business improvement, orders for suspension of business, and/or orders for cancellation of licences.
In fact, broad discretion is given to the regulatory authorities, and those administrative dispositions against insurance companies invoked by the regulatory authorities are not necessarily based on the assumption that violations of law by insurance companies have taken place.
Against this background, entities targeted for supervision not only have to make sure that laws and regulations are being observed but must also follow the guidelines officially promulgated by the regulatory authorities (Comprehensive Guidelines for the Supervision of Insurers).
Underwriting Life and Non-life Insurance
Underwriting life insurance and non-life insurance entails obtaining the necessary business licences from the regulatory authorities. Such licences for life insurance and non-life insurance business cannot be acquired by the same company, and companies are prohibited from running both businesses concurrently. However, both life insurers and non-life insurers are at liberty to offer insurance such as medical care insurance, accident insurance, or overseas travel accident insurance, ie, insurance from the so-called “third sector” insurance market.
Nevertheless, life insurance companies – whether operating in the form of a kabushiki kaisha or mutual company – must have board of directors’ meetings, auditors’ meetings, audit and other committee meetings, and meetings such as nominating committee meetings, and accounting auditors. Foreign companies intending to enter into the Japanese market through their subsidiaries are required to acquire the licences mentioned above. Foreign companies planning to enter through their branch offices must obtain foreign insurer’s licences.
During the licence application procedure, the “basic documents” (articles of incorporation, business plan, standard policy provisions and documents showing the method to calculate insurance premiums and policy reserves) must be submitted to the regulatory authorities. Furthermore, insurance companies cannot operate their businesses while being in violation of the basic documents, and, in order to develop and offer new insurance products, must procure approval for corresponding changes to the basic documents from the regulatory authorities (“Insurance Product Approval” – regular processing takes 90 days, standardised 45 days). However, regarding certain types of insurance, such as fire insurance where there is little concern of insufficient policyholder protection, a notification system to the regulatory authorities has been adopted; nevertheless, notification may not be required in cases where insurance companies state in the statement of business procedures that special provisions related to business insurance are to be established or modified without notifications (“Flexible Provision System”).
Other Business and Subsidiaries
Insurance companies are not permitted to conduct any business other than the insurance business (underwriting insurance) and business incidental thereto (restriction on other business). Furthermore, insurance companies are not allowed to own subsidiaries that perform businesses other than as legally stipulated, or obtain voting rights in domestic companies in excess of 10% of their total voting rights. However, with the approval of the regulatory authorities, insurance holding companies may have companies as their subsidiaries that insurers themselves may not own.
With respect to prescribed matters (which are quite extensive), such as customer explanations, or information control, insurance companies are obligated to have a system in place to secure soundness of operations and appropriate management. The minimum amount of capital of an insurance company is JPY1 billion.
Insurance companies are required to accumulate policy reserves and appoint an insurance administrator with a predetermined actuary’s licence to be involved in work related to actuarial science. In 1996, regulations on the solvency margin ratio were introduced. The solvency margin index has become an assessment standard for the supervisory authorities to execute early corrective actions with broad supervisory reach against targeted companies, including orders to submit an improvement plan.
At present, the solvency margin ratio on a consolidated basis has been introduced. In March 2016, the European Union announced the adoption of the equivalence recognition between Solvency II with temporary equivalence and the Japanese reinsurance supervision and group solvency. In June 2020, the Advisory Council on the Economic Value-Based Solvency Framework, which was established at the Financial Services Agency, published a report in light of which the FSA is currently deliberating the Economic Value-Based Solvency Regulation ahead of its implementation in 2025. On 30 June 2022, the FSA published a report on “The Tentative Decisions on the Fundamental Elements of the Economic Value-Based Solvency Regulation” to help prepare for the implementation of the insurers’ organisational restructuring.
See 2.1 Insurance and Reinsurance Regulatory Bodies and Legislative Guidance.
This is not applicable in Japan.
Under the Insurance Business Act, the regulations that apply to Japanese insurance companies also apply to local subsidiaries of overseas-based insurers. Nevertheless, the Act allows foreign insurance companies to conduct insurance business without establishing such local subsidiaries.
Foreign insurance companies may conduct insurance business in Japan only if they have opened a branch in Japan and obtained the applicable licence from the FSA, the body overseeing insurance companies (Article 185-1 of the Insurance Business Act). This requirement allows the FSA to effectively execute administrative power over such foreign insurers. With some exceptions, Article 185-6 of the Insurance Business Act requires such licensed foreign insurers to conclude insurance contracts with persons having an address or residence in Japan, property located in Japan, or vessels or aircrafts with Japanese nationality inside Japan. The procedure to apply for the licence is mostly the same as that for Japanese insurance companies. Since foreign insurance companies do not have capital inside Japan, they are required to deposit a minimum of JPY200 million to the deposit office to protect policyholders.
Restrictions on Unlicensed Foreign Insurance Companies
Unlicensed foreign insurance companies may not conclude insurance contracts with persons having an address or residence in Japan, property located in Japan, or vessels or aircrafts with Japanese nationality (Restriction on Foreign Direct Insurance; Article 186-1 of the Insurance Business Act) other than the insurance contracts listed below:
Exceptions and permissions
The restriction does not apply when an applicant wishing to purchase insurance from unlicensed insurance companies has obtained a permission from the FSA in advance of their applications for insurance as set forth in Article 186-2 of the Insurance Business Act. This exception is provided for to enable policyholders to purchase insurance products that are most beneficial to them. That permission may not be provided in the following cases:
In a recent trend, the government of Tokyo is pursuing a policy to attract overseas financial business providers to the Japanese market by providing assistance to cope with complicated financial regulations in Japan, such as opening a one-stop service centre for financial start-ups. It is expected that such a move will attract more overseas insurance companies and revitalise the Tokyo financial markets.
Fronting is not expressly prohibited nor permitted in Japan and there are no explicit expectations with regard to the cedent’s retention.
Existing insurance businesses may be acquired in several ways, such as through obtaining shares of Japanese insurance companies, a merger of insurance companies, or sale and purchase of insurance business. The Insurance Business Act provides a regulatory framework for these M&A activities of insurance businesses.
Under the Japanese regulatory framework, shareholders who own a certain percentage of voting rights in insurance companies are subject to oversight of the regulator.
A merger with an insurance company requires approval by the FSA. Article 167-2 of the Insurance Business Act provides the following standards/checkpoints that the FSA could use in determining whether to give an approval:
Sale and Purchase
A sale and purchase of insurance business also requires approval from the FSA, pursuant to Article 142 of the Insurance Business Act. Purchasers of insurance businesses must be licensed insurance companies. Such sale and purchase also requires a separate approval to transfer insurance contracts from the FSA, pursuant to Article 139 of the Insurance Business Act. Petitions for approval to transfer insurance contracts are reviewed according to the following standards/checkpoints:
The Insurance Business Act does not require policyholders’ approvals for transfers of insurance contracts to another insurance company. Instead, the transferor must make a public notice and notify each policyholder, and provide policyholders a chance to file objections to the transfer.
Unless otherwise allowed by any other law, the Insurance Business Act prohibits any person from acting as an agent or intermediary to conclude insurance contracts, an activity that falls within the definition of “insurance solicitation” under the Act.
In the case of a life insurance company, only registered life insurance agents (officers and employees of a life insurer; life insurance agencies (agents) as well as their officers, employees and other personnel) may conduct “insurance solicitation.” A characteristic feature of Japanese selling channels is for life insurance companies to utilise a large number of salespeople who have long belonged to those companies (mostly female employees known as “Sei-ho ladies”) among their overall salespersons. Put simply, every person selling insurance contracts has to be registered to do so. In principle, in the current legal system, life insurance agents may deal with insurance products of only one insurance company. In other words, they operate within the so-called one-company exclusive system. However, by fulfilling the prescribed legal requirements (such as enrolling two or more life insurance agents) it is possible to deal with insurance products of multiple insurance companies – in fact, quite a number of independent agencies currently do this.
Non-life Insurance Companies
The situation involving non-life insurance companies (including a reinsurance company) is as follows.
The majority of non-life insurance sales are made by agencies, which account for 90.7% of total sales on a direct-net-premiums-written basis, while sales by officers and employees of insurance companies (through their direct sales) and insurance brokers account for only around 8.6% and 0.7% respectively.
Dedicated insurance agencies account for 18% (based on the number of entities involved) of all non-life insurance agencies. Around 55% of non-life insurance agencies which are involved in another business are automobile dealers and repair shops, and around 10% of them are entities within the real estate industry – with both figures standing at high percentage rates.
Registered insurance brokers may also engage in “insurance solicitation” (limited to mediating conclusions of insurance contracts). The Insurance Business Act has assigned special duties to such insurance brokers, including:
There are only 54 insurance brokers in Japan, which is comparatively low. While most of them focus on large-scale businesses, handling products for individual consumers is extremely rare.
Sales Through Banking Channels
Insurance sales through banking channels in Japan commenced in 2001 but the number of products they could sell was severely restricted. The range of insurance products available for sale by banks has since expanded multiple times, and the restrictions were totally removed in 2007.
Banks function as insurance agents in the selling process. In this respect, it is worth mentioning that additional special regulations have been applied to banks in order to avoid circumstances of insufficient consumer protection, which could result from improper use of the banks’ information-gathering ability in relation to customers’ funds or their improper influence over customers.
Strict regulations have been imposed on banks, including measures/regulations for the protection of non-public information (pursuant to which customer information obtained through their banking business cannot be used in connection with insurance solicitation without customers’ consent) or the regulations concerning soliciting of borrowers (where certain types of insurance products cannot be sold to customers who are granted business loans). While these additional regulations have been imposed for the protection of consumers, they essentially function to protect the traditional channels of insurance distribution.
Recently, “open-for-visitor” agencies have strengthened their presence. Out of the insurance products of multiple insurance companies, these agencies make – on their own initiative – proposals of insurance products that conform to customers’ actual needs, which open-for-visitor agencies call consultative selling.
The Insurance Business Act imposes on a policyholder or the insured a duty to disclose material matters regarding risks requested to be disclosed by the insurer (the duty of answering the question).
This is a unilaterally mandatory provision (a provision that makes void those agreements that, contrary to this provision, adversely affect policyholders); however, in the field of non-life insurance – for example, maritime insurance contracts, aviation insurance contracts, nuclear energy insurance contracts and non-life insurance contracts – the coverage of damages arising from business activities conducted by a juridical person or some other organisation or an individual who operates a business is excluded from the scope of the application of the foregoing provision.
If a policyholder or the insured violates the aforementioned duty, the insurance company may cancel the insurance contract and, except for damages not arising from violation of the duty of disclosure, will be discharged from liability for making insurance payments. An insurance company’s right of cancellation will be extinguished one month after it learns the cause of the cancellation, or five years after the conclusion of the contract.
While insurance agents act on behalf of insurance companies, insurance brokers act on behalf of customers independent from insurance companies (buyer's agents).
Insurance contracts may be concluded verbally but, in practice, it is commonly done in writing so that the conditions of the contracts are clarified. The existence of insured benefits (economic benefits that may be disadvantaged by the occurrence of insured events) is required as a condition to effectuate a non-life insurance contract. The insured is the person to whom the insured benefit belongs.
The reason for the existence of insured benefits is to prohibit gambling and prevent moral hazards. However, this requirement for the existence of insured benefits tends to be applied fairly moderately and flexibly.
In non-life insurance, only the insureds may be the beneficiaries of an insurance contract. Insurance benefits are paid to the insureds and/or parties authorised by the insureds to receive the benefits.
This is not applicable in Japan.
Based on the content of the product, it should be determined whether such product is subject to Japanese regulation. Certain products may be subject to regulation as reinsurance products.
This is not applicable in Japan.
There are no laws or regulations on how to interpret contracts specific to insurance contracts.
In general, the courts interpret insurance contracts objectively, taking into account their comprehensibility by average, reasonable customers. Nonetheless, the courts tend to recognise agreements between insurance companies and customers that differ from explicit policy conditions, taking into consideration the way in which insurance companies and customers negotiated and concluded their insurance contracts, and seek reasonable solutions while ordering compensation for damages.
At the time of solicitation of an insurance contract, the Insurance Business Act requires insurance companies to deliver documents (contract outline) containing the following items to fulfil their obligation to provide information:
This is not applicable in Japan.
This is not applicable in Japan.
Insurance disputes are generally resolved in district courts or summary courts, depending on the value of the dispute. There are no special courts for resolving commercial insurance disputes and, therefore, the same procedure is applicable to both consumer contracts and reinsurance contracts. In practice, a jurisdiction clause in an insurance policy determines which court will hear disputes in relation to the insurance policy.
See 9.1 Insurance Disputes over Coverage.
Generally, a first hearing date is scheduled around one month after the filing of a lawsuit. It usually takes six months to one year to reach a judgment.
The losing party may appeal to the upper court based on any grounds if it is not satisfied with the decisions of the court of first instance. There are two stages of appeal.
A foreign judgment is required to be recognised in Japanese courts. To be capable of recognition and enforcement, a foreign judgment must satisfy the requirements of Article 118 of the Code of Civil Procedure. Whether these requirements are satisfied will be determined by the court in an action for “execution judgment” under Article 24 of the Civil Execution Act.
This is not applicable in Japan.
The Arbitration Act provides that an arbitration agreement must be in writing but does not require any specific wording. Parties to the arbitration may not appeal to the courts regarding the decision of the arbitral tribunal. However, the Arbitration Act provides that the parties may file a petition to set aside the arbitral award to the court in some situations, such as invalidity of the arbitration award due to the limited capacity of a party.
Japan is party to the New York Convention, and arbitration awards received in the member countries can be enforced in Japan.
Insurance alternative dispute resolution (ADR) is common, especially in the field of consumer contracts. An increasing number of insurance-related disputes are resolved through ADR.
Japan has not introduced the concept of punitive damages. Late payment interest is recoverable in respect of claims. Before 31 March 2020, the rates for late payment interest were 5% per annum for non-commercial claims and 6% per annum for commercial claims. As of 1 April 2020, the amendment of the Civil Code became effective and a new structure for late payment interest was introduced, ie, 3% per annum with subsequent reviews every three years to reflect market interest rates.
For non-life insurance, Article 24 of the Insurance Act provides that, where insured property is totally lost or destroyed, an insurer that has paid an insurance proceeds payment shall be subrogated to ownership and any other real right that the insured holds over the insured property, in accordance with the ratio of the amount of the insurance proceeds payment thus paid to the insured value (or the agreed insured value if there is any such amount).
Article 25 of the Act provides that, when an insurer has made an insurance proceeds payment, the insurer shall be subrogated with regard to any claim acquired by the insured due to the occurrence of any damages arising from an insured event up to the smaller of:
In Japan, the emergence of fintech was, at first, most pronounced in the banking sector. Indeed, the Japanese government first responded to fintech by amending the Banking Act so that banks could own technology companies as their subsidiaries, which was previously restricted to some extent (the “Amended Banking Act”). The Amended Banking Act came into force on 1 April 2017. In 2021, the Insurance Business Act was amended in the same way for insurance companies to own subsidiaries that provide IT and other technology to enhance insurance activities and beneﬁt the insurance companies’ customers.
Adoption of New Technologies
Japanese insurance companies are gradually adopting new technologies such as IoT (Internet of Things), big data and artificial intelligence to their services. For example, Tokio Marine & Nichido Anshin Life Insurance Co Ltd has introduced a medical insurance policy where an insured might obtain cash back of insurance fees if they walked certain average number of steps, daily. The insured would be required to use wearable technology to monitor their activities and record their health data.
Another example is Sony Assurance Inc’s automobile insurance, where an insured has a “driving counter” installed in their car to monitor the insured’s driving. If it shows safe driving on the part of the insured, the insurer will provide cash back towards the insurance fees.
Alliance with Tech Companies
Insurance companies alone may not be able to create new insurtech products because they do not have enough resources/knowledge to develop new technology. An alliance with tech companies or telecoms companies is therefore necessary. Another question has been whether insurance companies are allowed to own tech companies or telecoms companies as their subsidiaries to take full control of the new technologies.
The Fintech Support Desk
The FSA regards the fintech trend quite positively. One example of the positive attitude of the FSA is the Fintech Support Desk, which was established to provide a streamlined process for fintech businesses. Indeed, the FSA appears to be watching developments regarding insurtech with a high degree of interest.
See 10.1 Insurtech Developments.
Cyber-attacks have come to pose a severe and present risk, which Japanese companies have to cope with. Even though countermeasures are being introduced, they can easily be rendered ineffective. The Ministry of Economy, Trade and Industry of Japan (the METI) issued the Cybersecurity Management Guideline, which establishes that cybersecurity is a business challenge and that Japanese companies have to take appropriate protective actions.
To respond to such situations, insurance companies have developed insurance products to cover the costs of information leakage or damages caused by a cyber-attack. However, considering the survey conducted by the General Insurance Association of Japan in 2020 showing that only 6.7% of SMEs respondents have purchased cyber-insurance, the cyber-insurance market in Japan still has significant room to grow.
With advancements in autonomous car technology, the question of who should bear legal responsibility in the case of accidents involving self-driving cars is being debated. The Study Group on Liability for Damages in Autonomous Driving that was established by the Ministry of Land, Infrastructure, Transport and Tourism (the MLIT) published its report in March 2018. In the report, the Study Group concluded that, in the transition period where autonomous technology from level 0 to level 4 exist intermixedly, while drivers should basically bear legal responsibility for the damage arising from car accidents, it is appropriate to establish a framework for insurance companies to recover from automobile manufacturers effectively.
Tokio Marine & Nichido Fire Insurance Co Ltd has added protection to cover accidents arising from malfunctions in autonomous driving systems in order to provide prompt relief to victims of such accidents.
Increased longevity may affect the strategy of insurance companies. Recently, the Institute of Actuaries of Japan published the Standard Longevity Table 2018 (previously amended in 2007), indicating significant decreases of projected death rates. With this trend, it is reported that insurance companies will lower fees for life insurance by 5%-10% for newly entered insurance contracts. It is also reported that demand is gradually shifting away from life insurance to products covering living costs when the insureds become unable to work, reflecting increased longevity.
On 10 April 2020, as the impact of COVID-19 continued to expand, the FSA requested that the insurance industry consider, from the viewpoint of protecting policyholders, a more flexible interpretation and application of policy conditions regardless of any precedents.
Since then and until recently, the insurance companies’ policy was to pay insurance benefits by taking that request into consideration. For example, insurance companies paid hospitalisation benefits to COVID-19 patients with mild or no symptoms who were given treatment at various lodging facilities or at home in order to secure the availability of the hospital system to severely ill patients.
However, on 1 September 2022, the FSA took steps toward facing the new reality of living with COVID-19 by announcing a policy to limit the scope of hospitalisation payments to persons at a high risk of becoming severely affected by COVID-19, including:
For the most part, all insurance companies have been applying this limitation to persons diagnosed with COVID-19 from 26 September 2022 onwards.
On 5 June 2020, the “Act on Sales, etc, of Financial Instruments” was amended and renamed the "Act on the Provision of Financial Services;" this Act came into effect on 1 November 2021, as a part of the legislation on cross-sectional financial services intermediaries.
New Intermediary Business Category
The new law introduces a new category of “Financial Services Intermediary Businesses,” a category which entails a registration system that allows for a one-stop mediation service in all financial areas for a single registration, covering banking, securities, insurance, and loans (ie, cross-sectional legislation for the provision of financial services).
Today, while the employment and the household arrangements have diversified, the progress of information and communications technology has enabled the provision of various financial services online. In this context, the new law puts emphasis on allowing users of financial services more freedom of choice in obtaining financial services that satisfy their individual needs.
Belonging to Financial Institutions
Belonging to a specific financial institution is not required to start a financial services intermediary business. However, a security deposit is mandatory to secure financial resources to pay potential compensation in the future. Furthermore, a financial services intermediary is not allowed to accept users’ assets, handle certain types of services, or concurrently run an insurance agency or a brokerage business.
Scope of Insurance Products
The scope of insurance products that can be handled by financial services intermediaries is stipulated by a government decree, but financial service intermediaries are not allowed to handle insurance policies with strong investment potential, fire insurance, reinsurance, business-oriented insurance, group insurance, and non-life insurance with insurance amounts exceeding JPY20 million.
Each individual insurer has to decide how to deal with financial services intermediaries and what attitude to adopt towards this new sales channel. The insurance sector already has a long-standing market player in the form of an insurance broker which is independent from insurers. To determine what stance to take towards financial services intermediaries, insurers are advised to analyse their own relationships with brokers, bearing in mind the different functions served by brokers and intermediaries.
General Principles of Customer-Centric Business Operation (Comparable Common KPIs for Foreign-Currency-Denominated Insurance)
On 30 March 2017, the FSA published the “General Principles of Customer-Centric Business Operation.” If financial undertakers running a financial company attempt to adopt these general principles (while it is up to financial undertakers whether they adopt them, in practice, it is difficult for insurers to choose not to), they are required, for example, to develop and make public clear guidelines to achieve the customer-centric business operation and regularly make public announcements on how their efforts in relation to such guidelines are progressing.
The FSA's strategic priorities for the fiscal year 2022 are as follows.
Policy for Insurance Supervision
On 31 August 2022, the FSA announced the “The JFSA Strategic Priorities July 2022-June 2023 - Overcoming Challenges Confronting the Financial System and Building Foundation for Sustainable Growth." Based on these JFSA Strategic Priorities, the policy of insurance supervision administration for fiscal year 2022 was formulated as follows.
Insurance Solicitation by Providing Information About Public Insurance
On 28 December 2021, in light of the purpose of private insurance as a complement to public insurance, the Financial Services Agency (FSA) amended the Comprehensive Supervisory Guidelines for Insurance Companies (the “Supervisory Guidelines”) to ensure that insurance solicitors understand public insurance programmes and provide appropriate information about the relevant ones to customers so that they understand their risks and the need for corresponding coverage when concluding insurance contracts.
This amendment does not impose any uniform obligation to provide information about public insurance programmes or regulation of conduct that must be followed for all customers. Therefore, insurers and insurance solicitors are not obliged to include information about public insurance programmes, such as an explanation of important matters, in statutory documents, and thus flexible responses are permissible according to the characteristics of the products being handled and the forms of insurance solicitation.
Following some comments in the public comment procedure that the government should be responsible for publicising public insurance programmes, the FSA launched a site containing this information on 11 March 2022. The site provides an overview of public insurance programmes, indicating the corresponding relationships of private insurance for each risk, and printable materials to be used as leaflets. In practice, by using such leaflets or other materials, insurers and insurance solicitors have started efforts to provide information to customers about public insurance programmes related to the insurance policies being sold.
Actions Against Tax-Saving Insurance
The FSA has issued a series of alerts on insurance products sold primarily for the purpose of tax-saving. In response to the problem of tax-saving by purchasing products with high surrender rates, on 21 October 2019, the FSA amended the Supervisory Guidelines to prevent “insurance products designed to lead to solicitation activities that deviate from the original purpose of insurance, such as contracts whose main purpose is fund management of corporations or contracts that assume cancellation within a short period before maturity from the outset” (Part IV-1-11 of the Supervisory Guidelines), and has encouraged the establishment of an appropriate product management system as well as an appropriate insurance solicitation management system. However, recently, some insurers, which were found to have developed and solicited products that deviate from the original purpose of insurance, such as a name change plan for the purpose of tax-saving by changing the name of a corporation to that of an individual, have been subject to administrative orders by the FSA.
In response to this, in July 2022, the FSA published a scheme for collaboration with the National Tax Agency at each stage of product examination and monitoring in order to deal with the development and solicitation activities for products whose main purpose is tax-saving, which deviates from the original purpose of insurance.
In addition, the FSA has announced its recognition of the following issues as a result of its monitoring of insurers:
Comparable Common KPIs for Foreign Currency-Denominated Insurance Distributors
In January 2022, the FSA published the comparable common KPIs for foreign currency-denominated insurance distributors, based on the common KPIs already introduced for mutual funds, in order to help customers select financial institutions that offer high-quality, customer-oriented financial products and services, and to enable them to easily compare products across industries. Although such KPIs are typically expected to be announced by financial institution agents that sell mutual funds and foreign currency-denominated insurance, insurers that provide such insurance products should also pay attention to these industry movements. Each KPI is composed of (i) the customer ratio by investment evaluation and (ii) the cost/return by product.
Customer ratio by investment evaluation
This provides the distribution of customers by returns, after calculating returns after purchases. Return after purchase is the cancellation refund on the reference date + payment made on the reference date − lump-sum insurance premium upon contract execution (all converted to yen) divided by the lump-sum insurance premium upon contract execution (converted to yen).
Cost/return by product
This is plotted for each issuance of foreign currency-denominated insurance (up to 20 products). Average cost is calculated by annualising the sum of the new contract and renewal fee rates (accumulated payments) for contracts held for five years or more on the reference date by the contract period (number of months elapsed), which becomes a weighted average using the lump-sum insurance premium for each contract. Average return is calculated by annualising the rate of increase in the cancellation refund as of the reference date plus payments made up to the reference date versus the lump-sum insurance premium upon contract execution for each contract held for five years or more on the reference date by the contract period (number of months elapsed), which also becomes a weighted average using the lump-sum insurance premium for each contract.
FSA’s Analysis of KPI Figures
On 9 September 2022, the FSA published an analysis of the KPI figures as of the end of March 2022 as the base date. In this analysis, for the customer ratio by investment evaluation, the percentage of customers with a positive investment evaluation rate (simple average of 132 financial service providers) was approximately 70%; no clear relationship between the costs and returns was found for the cost/return by product.
Enhancement of Sales Staff Management Systems
As in the previous fiscal year, there continue to be inappropriate incidents, including money fraud, by sales staff of life insurers so the challenge to develop and establish an effective management system remains. The FSA has issued the following reminders on multiple occasions, urging insurers to develop a corporate risk culture to realise a strong sales staff management system:
Upgrading Insurance Agent Management Systems
In recent years, life insurance agents have grown to become a major sales channel along with that of the sales staff; non-life insurance agents have also continued to be a major channel accounting for the majority of sales by non-life insurers. As such, insurance agents play an important role as a link between customers and insurers in both life and non-life insurance, and thus the FSA considers the promotion of more sophisticated supervision of insurance agents to be necessary.
In particular, insurers are expected to be able to reasonably explain the appropriateness of commissions paid to independent agents who act for more than one insurer, reflecting not only the volume of sales but also the quality of the agent’s services (business quality), so that the process for making comparative recommendations is not distorted.
In the life insurance sector, as life insurers have been promoting efforts to reflect the business quality of life insurance agents in agent commissions, the Life Insurance Association of Japan (LIAJ) launched its “business quality assessment operation” in April 2022 under which the LIAJ will take the lead in supporting the improvement of agents’ business quality based on certain “business quality assessment standards.” Agents can check the status of their own business quality initiatives based on those standards, and if they are considered to be doing “well enough” as a result of the self-check, they are eligible to take the “business quality survey” conducted by the LIAJ. The results of the survey will be published for consumers.
The FSA encourages life insurers to expand their efforts to evaluate their agents’ business quality by using the “business quality assessment standards.” In fact, some insurers are replacing self-inspection, which insurers have traditionally required agents to perform as part of their education, management and guidance of agents, with the “business quality survey.”
Handling of Benefits Pertaining to “Deemed Hospitalisation” for COVID-19
Since the spread of COVID-19, insurers have made special payments of hospitalisation benefits to those who have been confirmed positive, including those who are asymptomatic, by deeming such treatment as hospitalisation under the terms of the policy (“deemed hospitalisation”), even when the insured person has been under medical observation at home or in a setting other than a hospital. With the spread of COVID-19, insurers have faced a significant increase in benefit payments this year.
Meanwhile, as part of the transition to a new phase towards “living with COVID-19,” the Japanese government has decided to limit the scope of notification of COVID-19 cases to only those at high risk (eg, elderly persons aged 65 years or older and pregnant women), effective 26 September 2022. In accordance with this change, insurers started from the same date to limit the payment eligibility for special treatment of hospitalisation benefits based on “deemed hospitalisation” to those people at high risk.
Handling of Genetic Information
The FSA considers it important to ensure that insurers do not use genetic information for unfair or discriminatory treatment, and that insurance underwriting and payment practices do not act as a disincentive to promote the use and spread of genomic medicine. In Japan, there is no law prohibiting insurers from selecting risk based on genetic information, as has already been established in the United States and some European countries.
In April 2022, the Japanese Association of Medical Sciences and the Japan Medical Association issued a joint statement calling for the government, regulatory authorities, and related organisations including insurers to take necessary measures to promote genomic medicine. In response, in May 2022, the LIAJ and the General Insurance Association of Japan (GIAJ) released a document titled “Handling of Genetic Information in Life Insurance (Non-Life Insurance) Underwriting and Payment Practices” to clarify the handling of genetic information, including genetic test results and genome analysis information, in insurance underwriting and payment practices. Specifically, the document states that (i) no insurers currently collect or use genetic test results, but that (ii) in the event that new issues are recognised in response to changes in the environment and other circumstances, such as advances in medical care and maturity of social debate, especially in conjunction with genomic medicine becoming more widespread and consumers gaining a more accurate understanding of genetic information in the future, insurers will respond in a timely and appropriate manner, including conducting reviews with reference to the guidance of the supervisory authorities and the opinions of medical professionals.